The Political Logic of the European Community Structural Funds Budget: Lobbying Efforts by Declining Industrial Regions

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EU RO PEAN UNIVERSITY IN STITU TE, FLO R EN C E

ROBERT SCHUMAN CENTRE

The Political Logic of the European Comm unity

S tructural Funds Budget: Lobbying Efforts

by Declining Industrial Regions

PAUL MCALEAVEY

EUI Working Paper RSC No. 94/2

BADIA FIESOLANA, SAN D O M EN ICO (FI)

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without permission of the author.

© Paul McAleavey

Printed in Italy in May 1994

European University Institute

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Contents

page

1. Introduction 3

2. Interest Groups at the European Community Level 5 3. The Structural Funds and Declining Industrial Regions

i. The Structural Fund Reforms of 1988 9

ii. The Objective 2 Lobby 12

iii. RETI 14

4. The Compensatory Logic of European Community Structural Policy 18 5. The Structure of the Bargaining Game over the Structural Funds Budget 29

6. Conclusion 35 © The Author(s). European University Institute. version produced by the EUI Library in 2020. Available Open Access on Cadmus, European University Institute Research Repository.

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. © The Author(s). European University Institute. version produced by the EUI Library in 2020. Available Open Access on Cadmus, European University Institute Research Repository.

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1. Introduction

It was stated in a pre-Single European Act account of interest group activity at the European Community (EC) level that 'no study of Europe-wide pressure groups would be complete without assessing the contribution that pressure groups may make towards the process of European integration' (Butt Philip 1985: 8). Since that time, not only has the European Community itself emerged from its 'doldrums era', which stretched roughly from the mid-1970s to the mid-1980s, but the study of EC policy making has benefited from the application of new theoretical approaches which facilitate more rigorous analysis than the grand integration theories of the past (Caporaso and Keeler 1993). New theoretical approaches can provide the tools for a greater understanding of the individual stages and arenas of the Community policy making process1. Moreover, these tools are more usually applied to disaggregated policy fields than to the Community system as a whole. As Cawson argues with regard to the uncertain trend towards a system of interest intermediation at the European level, 'if we are to map this trend, we will have to do so through the careful aggregation of empirical studies at the sectoral level, rather than by extrapolating from observations of contextless supranational phenomena' (1992: 100).

This paper provides an analysis of the lobbying efforts of a group of declining industrial regions in the review of the EC Structural Funds budget, in particular their efforts to maximise the level of funding diverted to their particular type of problem region2. Largely leaving aside questions of the difficulties of collective action encountered by the regions in seeking to mobilise a coherent group to promote their common interest, the focus is on the structure of the decision-making framework governing the review of the Structural Funds budget. This decision-making framework, as recognised in accounts of the growth of structural funding over the years, is largely dominated by member state governments, so that the process has often been regarded

1 By way of a particularly illustrative example. Geoffrey Garrett provides a useful critique of the prevalent approach to international co-operation, an approach drawn from transaction cost economics, in 'International Cooperation and Institutional Choice: The European Community's Internal Market', International Organization Vol. 46, No. 2, spring 1992. He introduces analytical tools drawn from the theory of bargaimng games, mcompleteTriFormation and incomplete contracting to understand the formation and operation of the European Community's internal market.

2 A distinction should be drawn between the 'horizontal' interaction of Community institutions in the setting of structural funding totals and agreement of the regulations governing use of these resources on the one hand, and the 'vertical' interaction between the European Commission, central government and sub-national government in the implementation of spending programmes on the other. This paper concerns an attempt by sub-national actors to influence the 'horizontal' process. More specifically, a further distinction should be drawn at the 'horizontal' level between the setting of budget totals and the agreement of regulations governing the Funds. The regions considered in this study had as their primary aim the maximisation of the spending total allocated to their particular type of problem region, and were only marginally concerned by the actual regulations governing implementation.

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as a paragon of intergovemmentalism. This paper seeks to move beyond the simple portrayal of structural funding in intergovernmental terms to understand the process of bargaining underpinning the member states' decisions on the allocation of such resources.

The prevalent approach in the literature on lobbying at the EC level is to focus on the logic o f collective action, usually paying less attention to the structural factors shaping the possibilities for lobbying influence. By contrast, although collective action problems will be addressed in passing, the decision-making framework governing the Structural Funds budget will be stressed to show the limited influence exerted by the lobby of declining industrial regions in the process. In this specific instance, the importance of the European-level bargaining game and the strategies adopted by member state governments at that level overshadow pressures exerted by lobby groups, despite collective action by those domestic interests across the EC affected by the bargaining process.

The paper considers, firstly, recent approaches to the study of interest groups at the European Community level, highlighting the importance of the structure of the decision-making framework governing a given policy. Section 3 then presents empirical information on the regional lobby organised to protect the interests of declining industrial regions in the Structural Funds budget review. The dynamics of mobilisation will be touched upon in this section, but logic o f membership questions do not shoulder the burden of explanatory power in this study. By contrast, the subsequent section considers the recent history of the Community regional policy in particular, highlighting the underlying compensatory logic driving the expansion of the budget for structural spending. The 'side payments' hypothesis is well explored in the literature on Community Structural Funds, and a critique of Gary Mark's modified version of the side payments model is given in Section 4. The final section of this paper then advances some suggestions on this question, going beyond simple characterisation of the Structural Funds as 'bribes' from wealthier to less prosperous member states of the Community. A conceptualisation of decision-making in the wider European Community/European Union3 as a two-stage process allows a distinction to be drawn between efficiency enhancing decisions (in terms of increasing aggregate welfare) and redistributive decisions under which the patterns of costs and benefits produced for each member state are addressed. This distinction highlights the role played by Structural Funds budget decisions as redistributive 'pay-backs', separated out from the

3 The empirical information provided in this paper and the time period considered refer primarily to the European Community before the advent of the European Union.

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aggregate welfare increasing decisions (which can have a wide variety of costs and benefits for individual member states). This wider political logic of the EC Structural Funds suggests that the influence brought to bear by sub-national actors in determining budget totals is likely to be of little significance.

2. Interest Groups at the European Community Level

As always, shifts in power are noted and acted upon by interest groups who act as a type of weather-vane for the locus of political power in society. They quickly re-target their influence, once they realize that the power to take decisions which affect them has moved to a new institution or to new actors (Mazey and Richardson 1993: v).

The 'weather-vane' metaphor, with which Mazey and Richardson preface then- volume on 'Lobbying in the European Community', has a long history in pluralist accounts of the state. The image conjured up is that of government as a responsive entity 'moved this way and that by the balance of forces among social interests'. Over forty years ago, however, this metaphor was criticised as 'much too simple' (McLennan 1993: 61). The flip-side of this conception of the state, as suggested in the opening quotation, is that interest groups somehow act as a pointer to the location of political power in society, but this too runs the risk of falling into the pluralist trap of 'taking things at their face value' (Blowers 1983: 413). In the specific context of interest group lobbying at the European Community (EC) level, the 'leading exponent of modem corporatist theory has declared that the political universe of Brussels has tended to replicate the pluralism of policy-making in Washington'; and yet, Cawson has pointed to 'the problems in stressing the pluralistic appearance of European interest group politics without examining in greater depth than Schmitter does the actual processes through which policies are formulated' (1992: 99-100).

Although the practice of lobbying European Community institutions is as old as the Community itself, the enormous increase in the volume of lobbying at that level over the last decade has been well documented (Andersen and Eliassen 1991). EC- wide interest groups first sprung up in the policy fields for which the Community assumed competence under the Treaty of Rome, before the Luxembourg Compromise directed the attention of interest groups back to their national governments (Gorges 1993: 73). The increased use of qualified majority voting and the expanded field of competence of Community institutions since the Single European Act (SEA) have encouraged an explosion of EC-wide interest groups. However, as noted by

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Greenwood et al, attempts to investigate the significance of this trend have largely mapped out the landscape 'without deliberately attempting to test the existing but sparse literature, or developing a new one' (1992: 4). It would be tempting to view the proliferation of such groups as an indication of pluralist decision-making arrangements at the supranational level, but in the absence of a body o f empirical studies across a broad range of policy fields from which to construct a wider understanding, this would certainly be to 'take things at their face value'.

A theme strongly emphasised in the expanding literature on 'lobbying the EC' is the need to adopt a disaggregated approach to mapping new trends:

The importance of disaggregation into domains, sectors, firms and territories to study interest intermediation and the transnational level is partly accounted for by the sheer range of types, and volume of players, involved. It is certainly a multi player game, but the sheer number does not necessarily imply competitive relationships and pluralism (Greenwood et al 1992: 21).

Mazey and Richardson foresee 'more stable and manageable networks of policy-makers and groups emerging' (1993: 257), but also note the need to develop a more complex conceptualisation of the structure and process of interest intermediation 'taking account of quite significant variations in the nature of policy networks' (253). Similarly, Gorges suggests that in the context of the Maastricht agreements any trend will be uneven and differences in the nature of interest intermediation will exist between 'macro-level, sectoral-level and micro-level patterns' (1993: 87). As emphasised above, this paper accepts the need for a disaggregated approach and focuses on the specific question of the Structural Funds budget.

In many of the recent attempts to understand the volume and style of lobbying now emerging at the Community level, a key feature is the focus on the dynamics of mobilisation. For example, McLaughlin and Jordan criticise the pluralist assumptions underlying the 'weather-vane' metaphor by questioning the common assertion that there is 'some kind of mechanical link between the influence of the EC and the mobilization of interests' (1993: 122). Often the existence of common interests and recognition of the influence of the EC are not enough to lead to the creation and maintenance of a 'Euro-group'. McLaughlin and Jordan therefore approach the question of mobilisation with a model derived from Mancur Olson's 1965 study The Logic o f Collective Action. The authors outline the basic Olsonian model which suggests that 'in the absence of selective incentives, there is no reason to suppose that interests shared by a number of

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rational companies will be organized politically' (1993: 154). By contrast, rational actors (not simply companies) could 'free-ride', obtaining the benefits gained by the organisation of an interest without contributing to the costs of establishing the group. The difficulties of mobilisation are often given as reasons why 'Euro-groups' are frequently 'fragmented, ill-assorted, inadequately financed and staffed, and ineffective bodies' (Butt Philip 1985: 84), and therefore why the weaknesses of European-level federations of interest groupings are 'apparently endemic' (Grant 1993: 34).

A focus on the logic o f membership of collective action is obviously a useful means by which to approach the question of interest intermediation at the EC level, but the danger is that it can give a one-sided picture of the process by giving too much emphasis to the 'supply of lobbying'. For example, Butt Philip argues that 'where Euro- groups command the confidence of their members and are well led and well financed, they must be counted as major actors in the Community's decision-making game: the Community's experience of agricultural policy since the 1960s bears eloquent testimony to this' (1985: 84-5). Is it really the case, as many pluralist accounts of 'pushing against an open door in Brussels' would suggest, that simply resolving the problems of mobilisation is the key to influence in the EC decision-making process? The agricultural case, as 'the model to which other sectional interests might aspire' (Mazey and Richardson 1992: 101), is instructive in this respect. The Committee of Professional Agricultural Organisations (COPA) is the organisation of the agricultural federations of the twelve member states of the EC and is widely cited as the most successful Euro- group, to the extent that the agriculture policy sector is deemed to be 'highly corporatized' (Gorges 1993: 81). And yet, even in the case of COPA, the existence of a well led and well resourced organisation in itself does not explain the development of agricultural policy:

It may be, of course, that the influence of the farm lobby per se, as distinct from the existence of a separate decision-making network for agriculture, has been exaggerated in the past. It is too easy to take the existence of a sophisticated and well- resourced farm lobby on the one hand, and the maintenance of a CAP (Common Agricultural Policy) that provides considerable financial support on the other, and come to the conclusion that there is a monocausal relationship from one to the other (Grant 1993: 38).

Institutions involved in the setting of the policy and 'the structure of the decision framework' (ibid.) should not be left out of the explanation in favour of an exclusive focus on the supply of lobbying pressure.

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Cawson advances the hypothesis that the logic o f membership is not the sole determinant of lobbying outcomes. Rather, the logic o f influence ( in the sense of how to organise to affect outcomes) is 'dependent upon the logic o f policy, and this varies according to the policy at stake' (1993: 101). In explaining the notion of the logic o f

policy, Cawson quotes Theodore Lowi's famous observation that 'policies make

politics':

Lowi (1964) was concerned to show that the type of policy under consideration affected the political process which underlay it; for example, the struggle to influence distributional issues was quite different from that around regulation .... we cannot divorce the interpretation of interest group politics from the policy-making institutions and domains at which they are targeted. 'Who governs?' is a more critical question for the study of EC policy-making than 'who speaks?' (1993:100).

Echoing and reinforcing the call for a disaggregated approach, Cawson argues that the

logic o f policy can only be understood by examining in detail the characteristics and

recent history of a given policy sector.

This paper considers the logic o f influence for declining industrial regions in the review of the EC Structural Fund budget by examining the underlying logic o f policy. The role of sub-national government has been a notable feature of European Community lobbying, and yet remains a largely unexplored field in the literature. Greenwood et al point out that the 'territorial dimension' is often neglected in the traditionally narrow view of an 'interest group' as a formal association in the 'functional business domain' (1992: 2). This paper provides a contribution to the growing body of empirical studies by seeking to address the gap in the literature left by the failure to consider regional lobbying. It does not consider in any depth the wide array of local and regional authority representative associations at the EC level which seek to exert influence over a wide and increasing range of policy sectors. Rather, it focuses on a specific attempt by a regional lobby (called into being specifically for the purpose) to protect the interests of declining industrial regions in the reform of the Structural Funds budget.

The following analysis suggests that the underlying logic o f policy in European Community Structural Funds means that, irrespective of how effectively a regional lobby is mobilised, the influence brought to bear by sub-national actors to gain more funds will be of little significance. The danger of using solely decisions as a research

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focus, noted by John (1994: 2), is acknowledged so that some attention is given to the agenda setting stage. The analysis below suggests, however, that decisions over levels of Community structural funding continue to be underpinned by a compensatory logic. Moreover, this logic continues to apply primarily at the member state, rather than the

regional level. As Grant (1993) has noted, a distinction must be made between those

decisions which the member states will jealously guard as their own and those which can be transferred to the European level, so that the lobbying of member states by sub national governments will remain important. The lobbying efforts at all levels by a group of declining industrial regions in the Structural Fund budget review are considered in the following section.

3. The Structural Funds and Declining Industrial Regions

i. The Structural Fund Reforms o f 1988

An increase in the overall Structural Fund4 budget to ECU 60.3 billion (in 1989 prices) for the 1989-1993 period followed the Single European Act and appeared to encourage the establishment of offices for many regional and city authorities in Brussels (John 1994). Amongst other objectives, these offices (pressured by sponsor authorities in the member states to 'deliver the goods') often claimed to maximise the flow of tesources to their respective territories. The wisdom of establishing such offices, however, has been questioned (Audit Commission 1991). The headline- catching increase in the overall level of funding occurred simultaneously with, and largely obscured, changes in the regulations governing the distribution and implementation of EC Structural Funds that severely limited the scope of individual lobbyists. While the staff of regional offices in Brussels often seek to justify the cost of running such an office by pointing to the flow of structural resources to the respective regions, the allocation of funding to the Community's regions is actually a tightly controlled process. The benefits accruing to a region from having an office in Brussels lie in other activities. As Hull and Rhodes pointed out as long ago as 1977, in the relationship between sub-national units of government and the EC in Brussels 'the name of the game is information-processing' (ib.: 66).

The Audit Commission's 'Rough Guide1 for British local authorities on lobbying the institutions of the EC split 'the effects of Europe' under three headings:

Euro-4 The Structural Funds comprise three individual funds: the European Regional Development Fund (ERDF); the European Social Fund (ESF); and the Guidance Section of the European Agricultural Guidance and Guarantee Fund (EAGGF, more commonly known by its French acronym FEOGA).

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regulation; European economic integration; and European funds (1991: 7). The 'Guide' pointed out the difficulty faced by individual authorities in lobbying the Community for funding, but stressed that collective action during the reform process is the only effective way of having a substantive input into shaping the broader regulations governing EC regional policy. The regulations5 and financial framework for the Structural Funds agreed in 1988 were later to be re-negotiated to cover the period from 1994 to 1999, and the lesson was clear: regions, which had been caught somewhat unprepared during the major reforms of 1988, could best organise their lobbying efforts by acting together to articulate a crystallised, pan-regional view to the Community institutions. Already in 1991 and 1992, in the lead-up to and in the wake of the publication of the Delors II Package6, the issue of Structural Fund expenditure became a highly political issue. Determining the arenas and the stages in the second revision of the Structural Funds on which the regions themselves were able to lobby thereby assumed a new importance for regional authorities.

The overhaul of the Structural Fund regulations in 1988 had concentrated Community structural measures functionally and geographically on five priority objectives. Objective 1 regions were allocated 65% of the increased funds. These were the least developed regions of the Community where per capita GDP was less than 75% of the EC average. The 1988 list of eligible Objective 1 regions was determined in the Council of Ministers and included Northern Ireland, Corsica and the French Overseas Departments, ten Spanish regions, eight regions in the south of Italy and the whole of Greece, Ireland and Portugal. While these Objective 1 regions took the lion's share of the funding, the Structural Funds were also directed towards other objectives. Objectives 3 and 4, relating to the problems of long-term unemployment and the integration of young people into the job market respectively, were financed from the European Social Fund but not on a geographical basis. Objectives 5a and 5b were designed to facilitate the adaptation of agricultural economies and the development of rural areas. However, it is Objective 2 that concerns us here. Eligibility for Objective 2

5 The rules governing the operation of the Structural Funds were overhauled during 1988 through three regulations which came into effect on 1 January 1989, the so-called 'Framework', 'Horizontal' and 'Implementing' Regulations as follows: Regulation (EEC) 2052/88, O.J. No. L185, 24/6/88; Regulation (EEC) 4253/88, O.J. No. 374,19/12/88; Regulation (EEC) 4254/88, O.J. No. 374, 19/12/88.

6 The European Commission proposals for the financial framework governing the total EC budget between 1992 and 1997 were presented by the Commission President Jacques Delors to the European Parliament in February 1992, just five days after the Maastricht Treaty was formally signed by the twelve member states, and proposed an ECU 20 billion increase in total spending between 1992 and 1997 c.f. Commission of the European Communities, From the Single Act to Maastricht and Beyond: The Means to Match Our Ambitions, COM(92) 2000 (Brussels, February 1992). The wider context of the post-1992 financial framework is set out in Section 4 below.

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status, that is the status of an industrial region in decline, required regions to meet a strictly defined level of unemployment, a set level of industrial employment as a proportion of total employment and a defined level of industrial job losses in recent years. Around ECU 7 billion (at 1989 prices) was committed for the 1989-93 period for the promotion of restructuring in sixty regions o f the Community which met these criteria.

The detailed monitoring and implementation structures set in place in the regions themselves to turn this expenditure first into spending programmes and then into specific projects has been covered elsewhere (Marks 1992). The key point to note, however, is that the decision on the actual distribution of expenditure between regions is scarcely amenable to lobbying by individual regions. Specific eligibility criteria for Objective 2 are set down in the Structural Fund regulations and the allocation of resources to individual regions is calculated primarily on the basis of unemployment figures. However, earlier in the process, regional authorities in territories of similar economic status should work together (as advised in the Audit Commission 'Guide') to place or maintain their particular problems on the regional policy agenda and to maximise the funding directed towards their type of problem region. As Aitken and Johnstone pointed out prior to the first Structural Fund reforms, the central task of the traditional industrial regions in the EC is to work together to provide evidence of 'need', and particularly that their need is greater than, for instance, those of agricultural, maritime, mountain or border regions (1985).

A spur for traditional industrial regions to work together to present a common view came early in 1991 when a question mark was placed over the future existence of Objective 2 funding. The main debate had shifted strongly in favour of Objective 1 regions. In addition, reform of the Common Agricultural Policy seemed likely to strengthen the case for increased 5b funding. Objective 2 was receiving little attention. Individual regional representatives in Objective 2 regions turned first to the desk- officers with monitoring responsibilities for their regions within the Directorate- General for Regional Policies (DG XVI). These desk-officers, the first point of contact for technical issues related to the implementation of the spending programmes, were of course unable to give any reassurances concerning future funding arrangements and advised that lobbying activities should be directed initially at the national governments of the member states. The problem faced by Objective 2 regions in the UK, the member state taking the greatest share of such resources7, was that their central

7 Objective 2 regions in the UK received around 38% of the total funding available for such regions in the EC between 1989 and 1993. Spanish, French and German Objective 2 regions received around 20%, 18% and 9% respectively. © The Author(s). European University Institute. version produced by the EUI Library in 2020. Available Open Access on Cadmus, European University Institute Research Repository.

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government had as its primary aim with regard to EC Structural Funds the reduction of overall spending. Consequently, while Spain, Portugal, Greece, Ireland, Italy and latterly Germany (following the decision to designate the Lander of the ex-GDR as Objective 1 regions) could be expected to act together in the Council to protect the funding interests of Objective 1 regions, Objective 2 regions were afforded no such luxury. At a meeting of senior central government officials with Eneko Landaburu (the Commission's Director-General for Regional Policies) early in 1991, representatives of several member states benefiting from Objective 1 expenditure argued that future resources should be concentrated to an even greater extent on Objective 1 regions. The argument was made that the economically stronger member states should be able to address small problem areas within their national territories (that is, Objective 2 regions) themselves, without recourse to EC Structural Funds. The response to this perceived threat was an effort by Objective 2 regions to organise a concerted lobby.

ft. The Objective 2 Lobby

The 'Objective 2 lobby' had its origins in the meeting held in Brussels in July 1991 of the sixty regions eligible for Objective 2 assistance. At that time, it was still not clear that Objective 2 funding would be continued beyond the end of 1993. The Directorate within DG XVI responsible for Objective 2 expenditure called the July meeting and undertook the task of gathering together all sixty eligible regions for what was ostensibly a gathering of experts in regional economic development policy in declining industrial areas. As the Regional Policy Commissioner Bruce Millan said of the gathering, it marked the 'first time that regional development practitioners from all sixty regions designated by the Commission as suffering the effects of severe industrial decline, were able to come together to discuss what are essentially common problems' (Commission of the European Communities 1992c: 9). However, this meeting was more than just a technical workshop. It was also designed to put pressure on the Commission Presidency to support the principle of continued Objective 2 funding. Directorate-General XVI made it clear at the meeting that it was unable to organise such full-scale events on a regular basis because of administrative, financial and time constraints and that the regions should take the initiative themselves. What was needed was a permanent Objective 2 lobby to attempt to put pressure on the member state governments as well as the Community institutions.

Within two weeks of the initial gathering, a meeting of eleven Objective 2 regions was organised in Brussels to set the agenda for future action. The lobby was organised from the start under the direction of Strathclyde Regional Council, where a

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sympathetic executive leadership combined with the political will to increase the region's profile in Europe. In October 1984, Strathclyde Regional Council had been one of the first sub-national governments of any member state to open an office in Brussels. Moreover, under the political leadership of Charles Gray, an energetic delegate to both the Assembly of European Regions and the Consultative Council of Local and Regional Authorities, Strathclyde had earned credibility and respect among European regions. Under Gray's leadership, and aware of the danger in being seen by the European Commission as an exclusive club, the lobby invited all sixty Objective 2 regions to a follow-up meeting in Florence in October 1991. At this meeting only 36 regions were represented, but together their total share of Objective 2 funding was around 90%. An 'Objective 2 lobby', consisting of eight regions, was then delegated to represent all 36 regions in meetings with Commissioners and representatives of other Community institutions.

The eight delegated regions were Catalonia, Wallonia. Tuscany, North Jutland, Nord Pas-de-Calais, North Rhine-Westphaiia, Groningen-Drenthe and Strathclyde, which continued to provide the leadership of the lobby. The eight were encouraged by DG XVI where the necessity of a united front had been stressed. As Greenwood et al note, 'the Commission has been keen to see representative outlets with which to reciprocate since the 1950s and remains today anxious to accelerate the formation of these' (1992: 1-2). The implied active role for the Commission is consistent with the prompting given at the July 1991 gathering for the regions to take the initiative themselves. This phenomenon of 'sponsorship' by the European Commission, establishing 'constituencies of Euro-groups around each Directorate-General', has been noted elsewhere (McLaughlin and Jordan 1993: 157).

The lobby therefore set about presenting its collective view not only to the Commission, but also to the President of the Council, the member state governments, the European Parliament and the Economic and Social Committee. Meetings were duly organised with Commissioners Millan and Papandreou (who at that time had responsibility for DG V - Social Affairs) in January 1992, and then with the President of the European Parliament and the Chair of the European Parliament's Regional Policy Committee in March. At his meeting with Millan in April 1992, Gray asked to be supported in his effort to gain an audience for the Objective 2 lobby with the member state ministers with responsibility for regional policy, scheduled to meet in Council in Lisbon in May. The lobby thereby demonstrated its awareness of the importance of the intergovernmental arena in the reform process. It was never likely that such an unprecedented delegation to ministers in the closed Council forum would

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take place, but the pressure exerted by the lobby gained a concession when a small delegation met the Portuguese Minister for Regional Policy, representing the President in Office of the Council, on his own.

By the time of the meeting in Lisbon, the Commission had published the 'Delors II Package' indicating support for the continuation of Objective 2 beyond 1993 (the importance of this will be considered below). This 'Package' set out the Commission's proposed financial framework governing the total EC budget between 1992 and 1997. As well as proposing an ECU 20 billion increase in total spending over these years, it set out an increase in the proportion of total expenditure devoted to structural spending from 27% of the EC budget in 1992 to 33% in 1997. In effect, this would involve a 50% increase in overall funding for Objectives 2, 3, 4, 5a and 5b (Commission of the European Communities 1992a). The Package also proposed a doubling of the Objective 1 allocation, which would be brought about by a two thirds increase in existing Structural Fund support supplemented by the new Cohesion Fund agreed at Maastricht for Greece, Ireland, Spain and Portugal. Such changes, however, would depend upon acceptance of the overall budget proposals, which would require a unanimous decision by the twelve member state governments. The task was therefore not yet complete for the Objective 2 regions. The activities of the Objective 2 lobby under the leadership of Strathclyde had been impressive but it was becoming increasingly apparent that they required a permanent office. It was in this context that a link with RETI was developed.

iit RETI

RETI had been formed as the Association of Traditional Industrial Regions of Europe following a meeting in Lille in April 1984. The meeting was called by the Regional Government of Nord Pas-de-Calais and was attended by representatives from European regions dominated by declining traditional industries (such as coal and steel). The Council of Europe, the Commission of the EC and the European Parliament also sent representatives to the Lille meeting. Their common concern was to ensure that the traditional industrial regions were able to respond to the economic challenges of the 1980s and 1990s, and in particular that they should not miss out on the development of new technologies. Following the meeting, an initiative was taken by representatives from Nord Pas-de-Calais, the Province of Hainaut, North Rhine-Westphalia and West Yorkshire Metropolitan County Council to form the permanent association of RETI. Like many international bodies, it began by using one of its members' facilities as a secretariat: located in Lille, both the political and administrative heads were supplied

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by the region of Nord Pas-de-Calais. The Regional Government's Director of Planning, Jean-Marie Emecq, who originally proposed the idea for the association, became the administrative head and the President of the Regional Government, Noel Josephe, became RETI's first president.

The original objectives of RETI were to provide a forum for the discussion and exchange of ideas and the development of co-operation and consultation between its members, as well as lobbying on behalf of areas of traditional industry, particularly at the European level. Although it was relatively successful in attracting new members and organising conferences such as that on 'New Economic Strategies for Traditional Industrial Regions' (held in Leeds in September 1985), RETI was slow to attract the enthusiasm of DG XVI. Part of the reason for this was a perception that the leadership and direction of RETI were idiosyncratic, and this severely dented the group's credibility with the Commission. More importantly, RETI was not fully representative of declining industrial regions in that it was numerically dominated by UK local authorities, and a number of member states were not represented at all. The Commission's preference for dealing with a representative group speaking on behalf of interests throughout the Community is well-known (Avervt 1975; Hull 1993: 86).

By the summer of 1991 RETI had opened an office in Brussels and appointed a full-time director there who was responsible to the association's executive in Lille, but the Commission remained unenthusiastic. The height of DG XVTs dissatisfaction came when it approached RETI to co-organise the meeting of the sixty Objective 2 regions in Brussels in July 1991. For political and administrative reasons the approach was fruitless and this seems to have spurred DG XVI into prompting the creation of the 'Objective 2 lobby' at the meeting itself. When Jean-Marie Ernecq spoke to the Brussels gathering in his capacity as Permanent Secretary of RETI, his suggestion that the task of emphasising the urgency of the situation facing Objective 2 regions should fall to RETI (Commission of the European Communities 1992c: 33) was not well received.

By April 1992, RETI had been transformed. At the association's annual general meeting in Namur in Belgium in April 1992, following the weakening of Josephe's position on losing the Presidency of the Nord Pas-de-Calais Regional Government, Strathclyde was supported by the Tuscan delegation in engineering changes in the RETI structure. In a de facto coming together of the 'Objective 2 lobby' and RETI, Charles Gray took over the presidency of the latter, with vice presidents appointed from each country represented in the association. The simultaneous change of name to

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the Association of European Regions of Industrial Technology indicated a break with the past, as much as an attempt to dispel the image of smokestack skylines conjured up by the concept of traditional industry, in an effort to recruit as many regions as possible. The strategic aim of RETI, set out in its news-sheet, became the recruitment of all the regions which participated in the Objective 2 conference in Florence in October 1991 (RETI 1992a: 5).

The realisation of this strategic aim proved far from straightforward. For example, the Land Government of North Rhine-Westphalia (a founder member of RETI and a participant in the delegated Objective 2 lobby) allowed its membership to lapse. The reasons for this go to the heart of the debate on the logic of collective action: the Land Government did not want to be stigmatised as a 'begging bowl region' and had the long-term aim of improving its economic performance in order to lose eligibility for Structural Fund assistance8; the Land contained significant areas of Objective 5b funding and was therefore not solely interested in Objective 2 funds; and perhaps most importantly, whether or not North Rhine-Westphalia participated in the lobby it would benefit from the group's eventual successes and the incentive was therefore to 'free-ride'. For similar reasons, RETI had some difficulty in attracting member regions from the Netherlands, Denmark and Germany. The importance of Community-wide groupings, reconciling differing opinions from all national groupings among individual members, has been stressed above: a failure to recruit as widely as possible would severely hamstring RETI vis-à-vis the European Commission.

The transformed RETI hit the ground running in lobbying for Objective 2 interests in the reform of the Structural Funds. However, its summer 1992 news-sheet indicated an awareness of the difficulties which remained. The document COM(92) 2001, 'The Community's Finances Between Now and 1997', proposed a total increase in funds for Objectives 2,3,4 and 5b of 50%, rising from ECU 5,070 million in 1992 to ECU 7,600 million in 1997. RETI was well aware, however, that there was no guarantee that the reform would ultimately present Objective 2 with as much as a 50% increase. Other Objectives were to be boosted, such as the redefined Objectives 3 and 4, so that although the Commission had accepted and proposed that Objective 2 should be continued, other changes seemed set to leave less than a 50% increase in resources for Objective 2. RETI again stressed the pivotal role of the UK government in accepting even the COM(92) 2001 proposals, pointing out prior to the UK assuming

8 Interview with an official of the regional representation office in Brussels, Verbindungsburo Nordrhein-Westfalen, 13 July 1992. Of course, this would be the long-term objective of all assisted regions. Such statements may be intended for consumption by the business community to avoid stigmatisation which could damage the climate for investment.

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the Presidency of the Council that 'the British government which takes over the Presidency in July has made clear its opposition to the total increase in the Community budget and shows no more enthusiasm for increasing the policies taken by the Structural Funds or by Objective 2 in particular' (RETI 1992b: 1).

Aware of the likelihood that a decision would be reached during the UK Presidency of the Community, the traditional industrial regions stepped up their campaign in the autumn of 1992 with a back-to-back conference of RETI and the Objective 2 lobby in Edinburgh9 which was addressed by UK government ministers. However, it is a feature of the closed nature of the decision-making process at the intergovernmental apex of the Community that the bargaining behind the compromise eventually reached at the Edinburgh Summit on December 11th and 12th 1992 remains obscure. Following intense negotiations (explained in detail in the following section) the Edinburgh conclusions on structural actions set the total of structural expenditure in the EC for 1994-99. The total level of resources available across all actions is set to rise from around ECU 20 billion in 1994 to ECU 27.4 billion in 1999. Expenditure figures for Objectives other than Objective 1 were not settled at the Summit, but it was decided that the remainder of Structural Funds set aside for Objectives 2, 3, 4 and 5b will rise from around ECU 7 billion in 1994 to ECU 8.12 billion in 1999. The conclusions further stated that these Objectives should broadly maintain their share of this total vis-à-vis each other.

It is, of course, difficult to determine conclusively whether the lobbying conducted by the industrial regions in the Structural Funds reform process was ultimately 'successful'. It is obviously impossible to turn back time to determine the 'counterfactual', in other words, to check whether or not Objective 2 funding would have continued post-1993 in the absence of the concerted pressure exerted by Objective 2 regions preceding the Edinburgh Summit10. In terms of the logic o f

membership, however, the very establishment of a lobbying organisation for traditional

industrial regions in the EC represents something of an achievement. Of course, the lobby suffered many of the weaknesses common to such efforts at collective action, but a relatively coherent lobby emerged for the first time to press the interests of the Community's declining industrial regions. Other European regional consortia, such as the Assembly of European Regions or the Consultative Council of Local and Regional

9 In the run-up to the Edinburgh Summit of Community heads of state and government, RETI named this event The Regional Summit'.

10 Obviously, the use of a term such as 'success' raises many questions. The major difficulty lies in determining whether influence has been brought to bear by a lobby in the decision-making process: it is clear that 'the problem with lobbying is that you can never link cause and effect' (John 1994: 2).

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Authorities, were already in existence but included representatives from regions benefiting not just under Objective 2 funding, but also from regions which either benefited under other Objectives or were not eligible at all. Such consortia, therefore, could not defend the specific economic interests of Objective 2 regions alone. Whereas a permanent, if not widely representative, lobby already existed prior to the 1988 reform of the Structural Funds, RETI at that time was widely perceived as ineffectual and lacked credibility. The emergence of the Objective 2 lobby, which later turned to and transformed RETI, represented the first real attempt at collective action by industrial regions to influence the Structural Funds reform process. Turning now to the 'success' of the lobby, attention switches from the logic o f membership to the logic o f

policy.

4. The Compensatory Logic of European Community Structural Policy

The history of the European Regional Development Fund (ERDF), by far the largest of the three funds which together make up the Structural Funds, reveals the compensatory logic of Community structural policy in general. Accounts of the creation of the ERDF in 1975 and its early development favoured an intergovernmental framework to characterise the process (Wallace 1977; Meny 1982; Mawson et al 1985; Wise and Croxford 1988). Very little significance was assigned to supranational bodies in the European regional policy process. By contrast, the member states in the Council of Ministers arena were deemed omnipotent in this field. The emergence of a slimmed-down ERDF after the initial ambition of the Thomson Report on the regional problems of the Community after the first enlargement in the early 1970s, coupled with the way in which the policy developed in its first decade of operation led to its neglect by political scientists. Usually, Community regional policy was dismissed as an irrelevance, a convoluted mechanism for budgetary redistribution reflecting dominant members state interests (c.f. McAleavey 1992: 4-14). According to Meny, the ERDF represented a policy process 'nationalised in the extreme' (1982: 377).

An understanding of why Community regional policy emerged in the first place is instructive in exposing the logic o f policy. As Cawson argues, the logic of any policy can only be understood by examining in detail its history and development. That regional policy emerged very much as a 'latecomer' among Community policies devised since the Treaty of Rome was signed is something of a truism in the literature (Clout et

al 1989: 192). Despite the Preamble to the Treaty which stated that the member states

were 'anxious to strengthen the unity of their economies and to ensure their

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harmonious development by reducing the differences existing between the various regions and the backwardness of the less favoured regions', there was no provision for a common regional policy although the initial Structural Funds were established at this time. The reason for the initial absence of an EC-level regional policy lies in the fact that the founders of the Community expected economic growth in the 1950s and 1960s to reduce regional disparities automatically, in fact, little headway was made in these years in reducing disparities between the Community's regions in terms of income, productivity or employment rates (Pinder 1983). Ultimately though, the spur for a Community level regional policy was provided by the first enlargement of the EC in 1973 with the accession of Denmark, the Republic of Ireland and the United Kingdom. It was evident that the largest element of the EC budget, the Common Agricultural Policy price support framework, had little to offer the UK (Shackleton 1991: 95) while a regional policy would appeal to all of the newcomers (Pinder 1983: 18; Mawson et

al 1985: 24; Clout et al 1989: 193). It was agreed at the Paris Summit of October

1972, the first at which the prime ministers of the new member states were present, to analyse the extent of regional disparities throughout the Community and to set up a fund by the end of 1973.

At that time, regional policies at the level of the member states were usually justified with reference to three goals: the search for greater social justice; the strengthening or maintenance of political cohesion; or the more efficient use of under utilised national resources (Pinder 1983:12). Of course, these goals could also be used to justify such a policy at the Community level, but such justifications were not uppermost in the minds of government representatives pushing for the creation of a Community regional policy. Social justice, cohesion and the efficient use of national resources had not figured prominently when the 'Conference on Regional Economies' held in Brussels as early as 1961 had been interpreted by certain governments as 'a declaration of war on the states' by European federalists intent on constructing Commission alliances with regional authorities to undermine state legitimacy (Meny 1982: 374). However, following the enlargements of the early 1970s there developed the highly sensitive question of 'who benefits?' from the major instruments of the Community budget. It was clear that the UK had little to gain from existing instruments. Ultimately, a protracted and difficult debate between the 'demandeurs' (the UK, Ireland and Italy) and the chief paymaster (Germany) resulted in a watered- down device for financial redistribution (Wallace 1977: 144; Bulmer and Paterson 1987: 207-215). © The Author(s). European University Institute. version produced by the EUI Library in 2020. Available Open Access on Cadmus, European University Institute Research Repository.

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From the outset then, Community regional policy was designed to compensate member states (primarily the UK) for financial contributions to the budget. Moreover, it has been suggested that EC regional policy was motivated by a 'compensational logic’ in the sense that a member state may be compensated for the economic costs of Community membership. For example, a member state may be compensated for the loss of control over instruments of economic policy such as the levying of customs duties, currency flexibility, industrial subsidies and other measures which could otherwise have been used to protect the interests of its own domestic economy (Mellors and Copperthwaite 1990: 23; Holland 1976). Community regional policy can therefore be conceived as a 'marginal' policy, tacked on to temper the negative spatial implications of the internal market, monetary union, competition policy or other 'central' policies. Even the Commissioner for Regional Policy in the late 1970s accepted many of the criticisms levelled at the ERDF in his famous acknowledgement that it was simply 'an accompanying measure', developed to cope with the detrimental effects of the main Community policies (quoted in Mawson et al 1985: 20). It was also an 'accompanying measure' in the sense that the funds were distributed according to a national quota system and were simply supplements to the national programmes already in existence, with little Community input.

Another respect in which European regional funds were compensatory was with regard to the principle of additionality. The requirement that European grants should be additional to (not a substitute for) national aid to targeted regions was included in the preamble to the first Fund Regulation in 1975, but the history of the ERDF has been marked by disputes over the extent to which this principle is respected by member state governments. Although additionality has assumed a 'central role in the theology of Community financial expenditure', national governments have paid little attention to Commission demands until recently and the reality is that funds are often used simply as reimbursement to the national government for expenditure already incurred (Laffan 1989: 47). A key question is therefore 'in whose interests is EC regional policy designed to operate?' (McAleavey 1993). The answer to this question is far from straightforward. The point to note in this context, however, is that the compensatory logic underpinning EC regional policy, in the absence of financial additionality at the level of target regions, can be interpreted as applying at the member state rather than the regional level.

Many of the early accounts therefore speculated as to how the regional policy field could be reformed and made more 'communautaire1. One study in particular considered the 'gradualist' approaches which might be adopted by the Commission to

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reform EC regional policy, thereby moving from a member state dominated carve-up of resources towards a genuine redistributive strategy for regional development (Hull 1979). 'Given the likely failure of any head-on attempt to secure a redistribution of regional benefits between the member states', it identified three possible approaches which the Commission might adopt:

A National Equity Approach whereby the existing shares between the member states of assisted regions and policy resources would be accepted as the parameters within which policy change can be attempted, the objective being 'to re-designate areas and redistribute resources within each member state, that is without affecting national shares in the Community total’;

An Increased Resources Approach whereby every state gains but some gain more than others as the absolute level of resources for each member state increases but the increase is greater for those with the most severe regional problems;

A Sectoral Alliance Approach whereby changes in regional policy are linked with other policies having a spatial impact, for instance the Common Agricultural Policy, the Single Market or Economic and Monetary Union, so that the member states with least to gain from regional policy would accept reform as a quid pro quo for gains in another policy sector (1979: 342-7).

The Sectoral Alliance Approach, as shown below, comes closest to the actual decision making process over structural funding in the EC. As well as highlighting 'the complexity of interest structure inherent in Community policy-making' (1979: 348), this approach accords with the above accounts of Community regional policy as a compensatory mechanism11.

The numerous reforms of Community regional policy in the first decade of its operation have been dismissed as mere tinkering around the edges of a marginal policy. Mawson et al, for example, examine the evolution of EC regional policy in this period

11 It should be noted, nevertheless, that Scharpf has suggested that decision-making patterns governing the European Regional Development Fund correspond closely to the model of 'joint- decision making' over common Federal-Lander programmes in the Federal Republic of Germany, in the sense that only an 'increased resources approach' would allow regional development support to be directed to new problem areas. In other words, it was unusual for either Lander governments in Germany or member state governments in the EC to forego resources to allow new areas outwith their territories to receive support (see Scharpf 1988). This may have been true of the ERDF in the early years of its existence, but it will be shown herein that a sectoral alliance approach comes closest to recent decision-making in this field.

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in terms of the 'Community method' and are led to the conclusion that in this field 'the guiding principle of Community decision-making is one of strict attention to the interest of national member states' (1985: 7). When wholesale reform of the regional policy of the EC eventually took place, the policy was more closely integrated with the two other Structural Funds and it was agreed that the total resources devoted to all three Funds together should double over the period between 1989 and 1993. The timing of the radical overhaul of the Structural Funds as a whole (coming in 1988 on the heels of the Single Market programme) is instructive and a brief sketch of the context substantiates the Sectoral Alliance Approach as outlined above.

In the mid-1980s, a semi-official report entitled Efficiency, Stability and Equity was produced by a group chaired by Tommaso Padoa-Schioppa, previously a senior Commission official, at the behest of the European Commission. The group had been asked to investigate 'the economic consequences of the decision taken in 1985 to enlarge the Community to include Spain and Portugal and to create a market without internal frontiers by the year 1992' (c.f. Cutler el al 1989: 77). Their report concluded that simple faith in the mechanisms of market liberalisation would not be enough to guarantee the realisation of economic growth smoothly throughout the Community's territory:

There are serious risks of aggravated regional imbalance in the course of market liberalisation. This is because different economic processes will be at work as markets integrate, some tending towards convergence, others towards divergence. Neither dogmatic optimism nor fatalistic pessimism is warranted in these respects. Opportunities for convergence will be increased, but adequate accompanying measures (my emphasis) are required to speed adjustment in the structurally weak regions and countries, and counter tendencies towards divergence (Padoa-Schioppa 1987: 4).

The Commission, in retrospect, explained the 1988 reform of the Structural Funds by pointing out that the accession of Spain and Portugal in 1986 had widened the gap between the Community's richest and poorest regions to a level that was 'unacceptably large' in preparing for the Single Market (Commission of the European Communities 1992a: 7). The implied direct chain between realisation of an 'unacceptably large1 gap in regional economic performance and the Structural Fund reforms somewhat obscures the political bargaining carried out in 1987 and 1988.

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In reality, significant splits emerged over the distributive implications of what had been agreed under the Single European Act (SEA). At the time of the SEA itself, such issues had been recognised with the explicit reference in Article 130A to the promotion of 'overall harmonious development' and the strengthening of 'economic and social cohesion’. It was in this context that the Commission was invited to present to the Council comprehensive proposals for the reform of the Structural Funds. Clear legislative objectives were therefore drawn up, but as Shackleton points out, 'there was no mention in the SEA of increasing the financial provision for the funds':

The result was that an important division of opinion emerged. On the one hand, the Commission, backed by the poorer member states, argued that the objective of cohesion could not be achieved without a substantial injection of additional finance. It therefore proposed that the funds should be doubled in size between 1988 and 1992 from 7 to 14 bnECU, thus raising their percentage share of the budget to 25 percent. On the other hand, the wealthier member states were reluctant to consider an increase of anything like the same proportions (1991: 107).

At the Brussels European Council meeting between 11th and 13th February 1988, this divergence of opinion was resolved in favour of the poorer members states, 'to general astonishment' as Shackleton points out (1991: 107). The resolution of the issue in favour of Spain, Greece, Portugal, Italy and Ireland was not so astonishing when the extremely blunt explanation of one senior Commission official th at 'without the Structural Funds five members would have had severe doubts about signing up for the Single European Act' is taken into account (Audit Commission 1991: 12). The largest part of the doubled funds (65%) was to be concentrated on Objective 1 regions located overwhelmingly in these five member states.

It is important to note that the Brussels Summit of February 1988 did not consider solely the issue of the Structural Funds budget. The financial framework worked out in 1987 and 1988 and agreed in Brussels settled an overall ceiling on revenue (the 'own resources' raised by the Community) and the structure of these 'own resources' (determining the relative shares of individual components of the Community budget), as well as the spending ceilings for each main category of EC expenditure up to 1992 (of which structural funding was only one element). Moreover, as part of the financing framework agreed in 1988, the Community committed itself to undertaking a further financing review in 1992. In the event, the Edinburgh European Council between 11th and 12th December 1992 provided the forum for settling the future financing of the Community up to 1999, an issue which had been fiercely debated